California Stay or Pay Law 2026: What Employers Can’t Recover – Relocation, Green Card Costs & Training
California stay or pay law 2026 prohibits employers from recovering relocation, green card, and training costs. Learn exceptions, the misconduct standard, and PAGA exposure in San Diego.
“Key Takeaways”
- The California stay or pay law 2026 (AB 692) prohibits employers from requiring repayment of most employment‑related costs. Effective January 1, 2026, the law (codified as Business and Professions Code § 16608) bans “stay‑or‑pay” provisions that require workers to reimburse employers for employment‑related costs, training expenses, or immigration/visa fees upon termination .
- Green card and visa cost reimbursement is explicitly prohibited under the California stay or pay law. “Penalty, fee, or cost” includes “reimbursement for immigration or visa‑related costs” . San Diego employers in biotech, tech, and defense sectors – where foreign talent is common – cannot require repayment of PERM labor certification, I‑140 petition fees, or legal expenses for any agreement entered after January 1, 2026.
- Two narrow exceptions exist: tuition for transferable credentials and sign‑on bonuses. Tuition repayment is allowed only for credentials that are not required for the employee’s current job . Sign‑on bonuses may be clawed back only if the agreement is separate, the employee has five business days to consult an attorney, repayment is prorated over a maximum two‑year period, and the employee may defer payment to avoid repayment entirely .
- “Misconduct” under the California stay or pay law means a high bar – poor performance doesn’t cut it. An employer may only claw back a bonus or tuition if the employee is terminated for “misconduct” as defined by Unemployment Insurance Code § 1256. This requires willful or wanton disregard of the employer’s interests; poor performance, isolated mistakes, or cultural fit do not qualify .
- Employees can sue for $5,000 per violation plus attorney fees, and PAGA exposure can multiply liability. The California stay or pay law creates a private right of action allowing workers to recover actual damages or $5,000, whichever is greater, plus injunctive relief and reasonable attorney fees . Moreover, violations may serve as predicate acts for Private Attorneys General Act (PAGA) claims, exposing employers to penalties for every aggrieved employee .
- The law applies prospectively – only to contracts entered on or after January 1, 2026. Existing repayment agreements remain enforceable under prior law . However, if an agreement is renewed or amended after the effective date, the updated terms must comply with the California stay or pay law.
- San Diego employment disputes under the stay or pay law are filed at the Central Courthouse (1100 Union St). We handle e‑filing under Local Rule 2.1.20 and represent employees and employers in these actions at the San Diego Superior Court.
California Stay or Pay Law 2026: Is Your Employee Relocation Agreement Illegal?
Introduction: The $5,000 Per Employee Trap Hiding in Your San Diego Offer Letters
When Maria accepted a senior engineering position with a San Diego tech company in Sorrento Mesa, she signed a relocation agreement promising to repay $15,000 in moving expenses if she left within two years. Eight months later, a better opportunity arose. She gave notice, expecting to negotiate a reduced repayment.
Instead, her former employer deducted the full $15,000 from her final paycheck and threatened to sue for the balance. Maria had no idea that under the California stay or pay law 2026 (AB 692), that relocation agreement might be void and unenforceable – and her employer could be liable for $5,000 in statutory damages, plus her attorney fees .
AB 692, effective January 1, 2026, fundamentally changes how California employers – from La Jolla biotech firms to downtown law offices – can recover costs when employees leave. From relocation expenses and training costs to green card sponsorship fees, the list of non‑recoverable expenses has grown dramatically .
At Leeran S. Barzilai, A Prof. Law Corp. , we represent both employers seeking to comply with the new law and employees facing improper repayment demands in San Diego. This guide will walk you through what the California stay or pay law prohibits, the narrow exceptions that remain, and how to navigate the new legal landscape at the San Diego Superior Court.
Part One: What the California Stay or Pay Law 2026 Prohibits – The “Stay‑or‑Pay” Ban
The Statutory Language
AB 692 amends California law by adding Business and Professions Code § 16608 and Labor Code § 926. Together, these sections prohibit employers from requiring workers to agree to any provision that:
- Requires repayment of a “debt” (including employment‑related costs, education‑related costs, or consumer financial products) if the work relationship ends;
- Permits debt collection upon termination of employment; or
- Imposes any penalty, fee, or cost if employment ends .
What Costs Are Covered?
The law broadly defines “penalty, fee, or cost” to include :
| Category | Examples |
|---|---|
| Relocation expenses | Moving costs, temporary housing, travel reimbursements |
| Training costs | Onboarding programs, internal training, certification courses required for the job |
| Immigration/visa costs | PERM labor certification, I‑140 petition fees, H‑1B filing fees, legal expenses |
| Recruiting costs | Replacement hire fees, retraining fees, recruitment expenses |
| Liquidated damages | Quit fees, lost goodwill, lost profit penalties |
Critical Note: The prohibition applies regardless of whether the cost is characterized as a “loan,” “advance,” or “reimbursement.” If the agreement requires repayment upon termination, it is likely prohibited .
Which Workers Are Covered?
AB 692 applies to all “workers,” defined as natural persons permitted to work for or on behalf of an employer. This includes employees, independent contractors, freelancers, interns, and apprentices . The law applies to employees working in California regardless of where the employer is headquartered – a key protection for San Diego workers employed by out‑of‑state companies.
Part Two: The Two Narrow Exceptions – When Repayment Is Still Allowed Under the California Stay or Pay Law
Exception 1: Tuition for Transferable Credentials
Employers may require repayment of tuition costs, but only if all of the following conditions are met :
| Requirement | Explanation |
|---|---|
| Transferable credential | The education must be from an accredited institution and not required for the employee’s current job . |
| Separate agreement | The repayment terms must be in a separate document from the employment contract. |
| Amount specified upfront | The repayment amount must be stated before the employee agrees and cannot exceed the employer’s actual cost. |
| Prorated repayment | Repayment must be prorated over the required employment period, with no accelerated payment schedule. |
| No repayment for termination | If the employee is terminated (not for misconduct), no repayment is required . |
The Transferable Credential Trap: If the training is mandatory for the job – for example, a required compliance certification, industry‑specific course, or internal leadership program – it cannot be subject to repayment under any circumstances . Employers cannot restructure mandatory training as “voluntary” to fit within the exception.
Exception 2: Sign‑On and Retention Bonuses
Employers may require repayment of discretionary or unearned monetary payments (sign‑on bonuses, retention bonuses) made at the outset of employment, provided all of the following conditions are met :
| Requirement | Explanation |
|---|---|
| Separate agreement | The repayment terms must be in a document separate from the employment contract. |
| Attorney consultation notice | The employee must be notified of the right to consult an attorney and given at least five business days to do so before signing . |
| Prorated repayment | Any repayment for early separation must be prorated over a retention period not exceeding two years, with no interest. |
| Deferral option | The employee must have the option to defer receipt of the payment until the end of the retention period – eliminating any repayment obligation . |
| Voluntary separation or misconduct | Repayment may only be required if the employee resigns voluntarily or is terminated for “misconduct” as defined in Unemployment Insurance Code § 1256 . |
What “Misconduct” Means: Under Unemployment Insurance Code § 1256, misconduct requires a “willful or wanton disregard of an employer’s interests.” Poor performance, inability to meet standards, isolated mistakes, or mere failure to get along with coworkers do not constitute misconduct . An employer who fires someone for “underperformance” cannot claw back a sign‑on bonus or tuition under the California stay or pay law.
Strategic Note for San Diego Employers: The five‑day attorney consultation period is not optional. Failing to provide this notice and waiting period can invalidate the entire repayment provision, exposing the employer to statutory damages .
What About Relocation Expenses?
Relocation costs are not covered by either exception. AB 692 explicitly includes relocation expenses in the definition of prohibited “penalty, fee, or cost” . Starting January 1, 2026, employers cannot require repayment of relocation expenses under any circumstances.
Part Three: Green Card Sponsorship – The End of Immigration Cost Recovery in San Diego
What AB 692 Means for Employers Sponsoring Foreign Workers
For years, many California employers – especially in San Diego’s biotech, tech, and defense sectors – required foreign national employees to sign reimbursement agreements for green card sponsorship costs, including PERM labor certification, I‑140 filing fees, and attorney expenses. The California stay or pay law 2026 eliminates this practice entirely for agreements entered after January 1, 2026 .
The law explicitly prohibits “reimbursement for immigration or visa‑related costs” as a recoverable expense . This includes :
- PERM labor certification application fees
- I‑140 immigrant petition filing fees
- I‑485 adjustment of status fees
- H‑1B, L‑1, O‑1, and other non‑immigrant visa costs
- Legal fees associated with any immigration filing
The Federal Law Overlap – PERM Costs Were Already Non‑Recoverable
Even before AB 692, federal regulations prohibited employers from requiring employees to pay for PERM labor certification costs . However, AB 692 expands this prohibition to all immigration‑related expenses, closing a loophole that allowed recovery of attorney fees and I‑140 costs. Now, no aspect of immigration sponsorship can be subject to repayment .
What About Existing Green Card Agreements?
AB 692 applies prospectively – only to agreements entered on or after January 1, 2026 . Existing green card reimbursement agreements remain enforceable under prior law. However, if the agreement is renewed, amended, or extended after the effective date, the updated terms must comply with the California stay or pay law.
Part Four: Enforcement – Penalties and PAGA Exposure Under the California Stay or Pay Law
Statutory Damages – $5,000 Per Employee
AB 692 creates a private right of action for workers. An employee who is subject to a prohibited repayment provision may sue to recover :
- Actual damages, or
- $5,000 per worker, whichever is greater
Additional Remedies
In addition to statutory damages, a successful employee may recover :
- Injunctive relief (e.g., voiding the repayment agreement)
- Reasonable attorney fees and costs
- Any other remedies available under law
PAGA Exposure – Multiplying Liability
Beyond the individual $5,000 penalty, violations of the California stay or pay law can also serve as “predicate violations” under the Private Attorneys General Act (PAGA) . PAGA allows an employee to sue on behalf of all “aggrieved employees” for civil penalties, which are calculated per pay period per employee.
The Math: A single unlawful repayment provision applied to 50 employees over a period of, say, two years, could generate penalties in the hundreds of thousands of dollars – far exceeding the individual $5,000 statutory award.
Retaliation Claims
Attempting to enforce prohibited repayment provisions may also trigger retaliation claims under existing Labor Code sections . An employer who deducts money from a final paycheck or threatens legal action to recover prohibited costs may face additional liability under Labor Code § 98.6.
Part Five: What San Diego Employers Must Do Now
1. Audit All Existing Agreements
Review the following documents for prohibited repayment provisions :
- Offer letters
- Relocation agreements
- Training reimbursement agreements
- Immigration cost recovery agreements
- Sign‑on bonus agreements
- Retention bonus agreements
- Employee handbooks and policies
2. Separate New Agreements
For sign‑on bonuses and tuition programs that qualify for exceptions, ensure the repayment terms are in a separate document from the employment contract .
3. Implement the Five‑Day Attorney Consultation Period
For sign‑on and retention bonuses, establish a procedure to provide employees with written notice of their right to consult an attorney and a waiting period of at least five business days before signing .
4. Redesign Training Programs
If you currently require repayment for internal training programs, consider restructuring them to fit within the transferable credential exception – or accept that such costs are non‑recoverable .
5. Train HR and Recruiting Teams
Ensure HR personnel understand that relocation costs and immigration expenses cannot be subject to repayment for agreements entered after January 1, 2026. Using outdated templates can result in unintentional violations .
Part Six: What San Diego Employees Should Know
Your Rights Under the California Stay or Pay Law
If you signed a repayment agreement after January 1, 2026, you may be protected by AB 692 if the agreement covers :
- Relocation costs
- Training or onboarding expenses
- Green card or visa costs
- Any “penalty” for leaving
How to Challenge an Improper Repayment Demand
If your employer demands repayment of prohibited costs or deducts money from your final paycheck:
- Document everything – save emails, pay stubs, and the repayment agreement.
- Do not sign any new agreements without understanding your rights.
- Contact a San Diego employment attorney – you may be entitled to statutory damages and attorney fees .
The Deferral Option for Bonuses
If you receive a sign‑on bonus with a repayment obligation, remember that you have the right to defer receipt of the payment until the end of the retention period, eliminating any repayment obligation .
Part Seven: San Diego Superior Court – Where AB 692 Cases Are Litigated
Venue: Central Courthouse, 1100 Union St
Employment disputes under the California stay or pay law are filed in the San Diego Superior Court Civil Division at the Central Courthouse, 1100 Union Street, San Diego, CA 92101. Unlimited civil cases (over $35,000) are heard in this venue .
E‑Filing Requirements
All civil filings must be e‑filed under San Diego Superior Court Local Rule 2.1.20. We handle the e‑filing for our clients, ensuring compliance with formatting requirements and timely service.
Small Claims Considerations
If the amount in controversy is under $10,000, employees may file in the Small Claims Division at the Madge Bradley Building (1409 4th Ave) . However, AB 692’s $5,000 statutory damage provision plus attorney fees often makes small claims less advantageous than superior court.
Frequently Asked Questions
AB 692, effective January 1, 2026, prohibits employers from requiring workers to repay employment‑related costs (relocation, training, immigration fees) if they leave their job. It allows narrow exceptions for transferable tuition and sign‑on bonuses .
For relocation agreements entered on or after January 1, 2026, no. The California stay or pay law explicitly prohibits repayment of relocation expenses . For agreements signed before that date, existing terms may still apply.
No. The law explicitly prohibits reimbursement for immigration or visa‑related costs . This includes PERM labor certification, I‑140 petition fees, and legal expenses for any agreement entered after January 1, 2026.
Tuition repayment is allowed only if the education is for a transferable credential that is not required for the employee’s current job. The agreement must be separate, prorated, and cannot require repayment if the employee is terminated (unless for misconduct) .
Yes, but only if the employer follows strict requirements: separate agreement, five‑day attorney consultation period, prorated repayment over a maximum two‑year period, and the employee has the option to defer payment to avoid repayment entirely .
Under AB 692, “misconduct” follows the definition in Unemployment Insurance Code § 1256 : a willful or wanton disregard of the employer’s interests. Poor performance, inability to meet standards, isolated mistakes, or cultural fit do not qualify .
You may sue for actual damages or $5,000, whichever is greater, plus attorney fees and injunctive relief . Additionally, the violation may serve as a predicate for a PAGA action, exposing your employer to penalties for all similarly situated employees.
No. The law applies only to contracts entered on or after January 1, 2026. However, if an existing agreement is renewed or amended after that date, the updated terms must comply .
Employment cases under AB 692 are filed at the San Diego Superior Court Central Courthouse (1100 Union St). We handle e‑filing and representation for both employees and employers.
Yes. We provide employment law services in Spanish, Hebrew, and Chinese to serve San Diego’s diverse workforce and business community. Contact us to schedule a consultation in your preferred language.
Contact Our San Diego Employment Law Firm
If you are an employee facing an improper repayment demand, or an employer seeking to comply with the California stay or pay law 2026, contact Leeran S. Barzilai, A Prof. Law Corp. today. We help San Diego workers and businesses navigate the new reimbursement ban with confidence.
Leeran S. Barzilai, A Prof. Law Corp.
4501 Mission Bay Dr. #3c
San Diego, CA 92109
(619) 436-7544
Call today for a free consultation. Let us help you understand your rights and obligations under California’s new stay or pay law.
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Sources:
- California AB 692 – Legislative Information
- California Business and Professions Code § 16608 (New Law)
- California Labor Code § 926 (Private Right of Action)
- California Unemployment Insurance Code § 1256 (Misconduct Definition)
- San Diego Superior Court Civil Division Local Rules
- AB 692 Analysis – CDF Labor Law
- AB 692 Analysis – Kelley Drye
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IMPORTANT DISCLAIMERS:
AI-Generated Content Disclosure: The core legal information is based on California law, but the presentation and structure were AI-enhanced for educational clarity.
Legal Disclaimer: This video is for educational and informational purposes only. It does not constitute legal advice, nor does it create an attorney-client relationship. You should consult directly with a qualified California attorney licensed in your state for advice on your specific legal situation. Laws and procedures change, and your individual circumstances require personalized counsel.
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